Tick tock: Have you started saving for your child’s education?

RESPEvery parent has heard the same words when they welcome their tiny bundles of joy into their lives. It goes by fast.

Of all the parenting advice I have ever received, this by far is the most relevant and the most accurate. There are days early on, when you are sleep deprived and you feel like the clock is going backwards. But once you (they) reach a certain level of independence, it is like you blink your eyes and zoom- you’ve moved from toddler to teen in what feels like an instant.

When you realize how quickly that time flies and translate that into a timeline to save for your child’s education, well- you better get moving!

What to do with savings?

You are free to save however you’d like for your child’s education, of course, but there are options that are tax-friendly, and get you a little boost from government dollars: The RESP (Registered Education Savings Plan).

What is an RESP?

You are likely aware of the RRSP (Registered Retirement Savings Plan), but the government also offers a tax-sheltered plan to help you sock money away for your child’s post-secondary education:

How does it work?

A subscriber (you or whomever opens up a plan) on behalf of a beneficiary. The beneficiary is most often your child, but can also be your grandchildren, niece, nephew or even a family friend.

Like an RRSP, an RESP can hold a variety of investments, and also like an RRSP, income is pulled out when in a lower tax bracket (your child is receiving the income as a student and is in a low tax bracket).

In order to get an RESP, the child needs to have a SIN number.

After high school, the child (beneficiary) withdraws money from the RESP to pay for education at an apprenticeship program, CEGEP, trade school, college or university.

What’s in it for me?

The appeal of this is that  contributions are matched by the government through the CESG (Canadian Education Savings Grant) – which essentially matches 20 cents on every dollar you contribute, up to a maximum of $500 on an annual contribution of $2,500. There are options to carry forward, as well as for potentially larger CESG contributions, depending on family income. This grant continues until the child turns 17.